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Is Freeport-McMoRan Preparing for an Eventual Sale?

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Jan. 25 2019, Updated 3:25 p.m. ET

Freeport’s sale

Last year, rumors cropped up that Freeport-McMoRan (FCX) was up for sale. In an interview with Bloomberg, Freeport’s CEO, Richard Adkerson, said, “But if an opportunity for us to sell to another company would arise, and that would be good for our shareholders, you would see us trying to get the best deal we can get.”

However, during the company’s third-quarter earnings call, it denied that it had any plans to sell off the company, and Adkerson said his comments to Bloomberg were a “stock answer.”

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Copper

To be sure, while miners have tightened their purse strings when it comes to capex and instead looked at cutting debt and returning cash to shareholders, copper has been an exception. Diversified miners such as Rio Tinto (RIO), BHP Billiton (BHP), and Vale (VALE) have looked open to organic as well as inorganic growth in the copper space.

During its fourth-quarter earnings release, Freeport said that it would now be using a copper price of $2.50 per pound to determine its copper reserves compared to the current methodology, with which it’s using a copper price of $2.0 per pound.

Another sell-off rumor?

With this new methodology, Freeport will report higher copper reserves compared to what it previously reported. Freeport will report a 35% increase in its copper reserves in the Americas. While equity investors value copper miners based on short-term earnings multiples, merger and acquisition activity happens based on copper reserves and copper’s long-term outlook. With new reserve methodology, Freeport might again spark rumors of a possible sale.

Meanwhile, valuing Freeport could be a tough exercise, as we’ll explore in the next article.

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